June 24, 2016
Today, the Competition and Markets Authority (CMA) issued their final report in to what has been a two-year long investigation in to the energy industry.
The Office of Gas and Electricity Markets (OFGEM) first referred the energy market to the CMA in 2014, a decision made at the height of concerns about the energy sector and after years of mounting fears. The main reason the decision to refer the market was made was (likely) due to the continuously rising cost of household energy bills. There had been a rapid increase in retail energy prices between 2004 and 2014: average annual domestic gas prices rose by around 125% in real terms over the period, and domestic electricity prices by around 75%.
Confirming provisional findings announced earlier this year, the CMA said that energy suppliers should be ordered to hand details of customers who have been on a default tariff for more than three years to OFGEM.
These details will then be used to build a database to allow rival suppliers to approach these customers, although it is intended that customers can opt out of this database at any time.
It is hoped that the database remedy will tackle the issue of low customer engagement in the energy market. The CMA's research discovered that large numbers of domestic customers do not engage in retail energy markets by shopping around or switching supplier. In a survey conducted of 7,000 domestic customers, 34% of respondents said they had never considered switching supplier and 56% said they had never switched supplier, did not know if it was possible or did not know if they had done so.
Reflecting this widespread lack of engagement, around 70% of the customers of the Six Large Energy Firms currently pay the Standard Variable Tariff (SVT), which is the default tariff (ie the tariff customers pay if they have not made an active choice), despite the fact that SVTs are much more expensive than alternative tariffs. For example, the dual fuel SVT customers of the Six Large Energy Firms (excluding prepayment customers, who, as noted below, have a very restricted range of tariffs) could have made average annual savings of around £330 in mid- 2015 if they had switched to another supplier. At Energylinx we can't say this enough, fixed priced tariffs are significantly cheaper than a suppliers standard tariffs, so shop around for your energy because you could save a small fortune.
A price cap will also be transitioned (2017-2020) in for the 4m households on a prepayment meter, this is intended to reduce the combined bill for these customers by £300m a year.The CMA believe that the detriment suffered by prepayment customers is particularly high and they have not been able to benefit from competitive prices in the same way as other customers due to the constraints we have identified.
Furthermore, the CMA announced that it intended to strengthen some of the powers that OFGEM had, which should allow the regulator to push through change more efficiently and to keep a closer eye on the marketplace.
The measures announced today are intended to increase competition in the marketplace and ultimately ensure customers can get the best deal possible on their energy bills. The CMA research also revealed that customers are currently paying £1.4bn more than they would be in a fully competitive market.
Roger Witcomb, chairman of the energy market investigation, said: "Competition is working well for some customers in this market - but nowhere near enough of them. Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future."
Posted on June 24, 2016 at 11:34 AM